The IAASB recently released for public comment three interrelated exposure drafts that address quality management. The proposals bring important changes to the way professional accountancy firms are expected to manage quality—for audits, reviews and other assurance and related services engagements.
The Exposure Drafts comprise:
- Proposed International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (previously ISQC 1)
- Proposed International Standard on Quality Management 2, Engagement Quality Reviews
- Proposed International Standard on Auditing 220 (Revised), Quality Management for an Audit of Financial Statements
The exposure drafts are accompanied by an overall Explanatory Memorandum, The IAASB’s Exposure Drafts for Quality Management at the Firm and Engagement Level, Including Engagement Quality Reviews that explains the interrelationships and overlapping issues.
Among the proposals is a new risk-based approach that firms are required to use in managing engagement quality. The new approach will compel firms to be proactive, responsive and thoughtful about the nature and circumstances of the firm and the engagements it performs in designing, implementing and operating its system of quality management. Furthermore, the engagement partner will have a greater role in managing and achieving quality at the engagement level based on the nature and circumstances of the engagement.
Other key changes across the three standards include:
- Modernizing the standards for an evolving and increasingly complex environment, including addressing the impact of technology, networks and use of external service providers.
- Increasing firm leadership responsibilities and accountability, and improving firm governance.
- More rigorous monitoring of quality management systems and remediation of deficiencies.
- Enhancing the engagement partner’s responsibility for audit engagement leadership and audit quality.
- Addressing the robustness of engagement quality reviews, including engagement selection and performance and documentation of the engagement quality review.
In addition to the proposed standards, the IAASB has released practical examples and guidance to demonstrate how the ISQM 1 proposals may be applied and to provide support for understanding certain aspects of the standards.
More information about the proposals is available at www.iaasb.org/quality-management. Comments on the proposals are due by July 1, 2019.
The IAASB have also organized a series of webcasts during the comment period to take participants through key aspects of the proposals:
- March 28, 2019 (7am – 9am ET) Introduction to the proposed quality management standards and ED-ISQM 1: Deep dive on the firm’s risk assessment process. Click to view.
- April 25, 2019 (7am – 9am ET) ED-ISQM 1: Deep dive into governance and leadership, information and communication, monitoring and remediation and networks and service providers. Click to view.
- May 7, 2019 (7am – 9am ET) Overview of ED-ISQM 2 addressing engagement quality reviews and Overview of ED-ISA 220 (Revised) addressing quality management for audit engagements.
The webcasts will also include an opportunity for participants to ask questions, or participants may submit questions beforehand.